The surprising reason why Obama favors natural-gas exports

For the past year, there’s been a simmering debate in Washington over whether the Department of Energy should approve more terminals to export liquefied natural gas. The country, after all, is newly awash in shale gas. Should we sell it abroad or keep it all for ourselves?

A Russian tanker carrying liquefied natural gas arrives in Japan. U.S. policymakers are currently debating whether we should get in on this action. (Tsuyosi Matsumoto — AP)

Now here’s the latest twist: The Financial Times reports that President Obama is likely to weigh in on the side of more exports. Why is that? Administration officials reportedly think that the trade and geopolitical benefits of increasing exports outweigh the possible downsides:

A vocal lobby of energy-intensive manufacturers, including Dow Chemical and Alcoa, has urged the administration to limit export permits, arguing unrestricted LNG sales overseas could erode the energy cost advantage created by the shale boom’s cheap gas.

However, US officials believe that being seen to restrict exports for the benefit of domestic industry would send a terrible signal about the country’s support for free trade.

So what’s the thinking here? A recent report from the Congressional Research Service breaks down some of the key trade issues. Technically, Article XI of the General Agreement on Tariffs and Trade forbids restrictions on exports through quotas and licensing. The United States could conceivably get an exception for natural gas — because it’s a limited, exhaustible resource. But there are good reasons not to seek an exception:

There are exceptions to Article XI based on the conservation of exhaustible natural resources or the necessity to protect human health, which may apply if the United States restricts LNG exports. However, these exceptions may be dependent on a country restricting its own production.

Additionally, restricting LNG exports may put the United States in a contradictory position vis-à-vis cases it has brought to the WTO, specifically against China for limiting the export of rare earths and other metals. The position of the United States as a promoter of free trade may also be challenged.

The United States has been concerned for quite some time about China’s chokehold on the global supply of rare-earth metals — and has been appealing to the World Trade Organization to rule against China’s various export restrictions. Those arguments sound a lot less convincing if the Department of Energy is rejecting licensing applications for natural gas exports at the same time.
It’s a good reminder that energy issues and trade have become increasingly intertwined in recent years. It’s not just natural gas or rare earths. The United States is also challenging India’s attempts to protect its domestic solar industry. The Commerce Department is putting up new tariffs against subsidized Chinese solar panel imports. Meanwhile, Congress and Europe are at odds over how to levy a carbon fee on international flights. These aren’t all necessarily related. But it’s a reminder that trade considerations are far from minor.